Wednesday, February 16, 2011

The Real Tragedy of State and Local Employees

State and local government employees face signficant layoffs and dramatic reductions in their benefit packages. Why? The unions claim that the reason is the stingy taxpayer, who, in most states, makes less average compensation than the employees that the taxpayer is funding. The real problem is excessive promises by the union leadership, encoded into law by governors, state legislatures and local governments. There has never been any realistic chance that these benefits could be paid for...never. This grand plan only worked as a ponzi scheme, providing benefits to the early recipients until the cold hard facts of demographics revealed the fraudulent nature of the promises.

The great tragedy is that all of this fooled the employees. They assumed that they would be provided abundant retirement income and medical benefits. Thus, there was no need to save. They could spend with abandon and they did. Now, the day of reckoning has arrived and there is no money to pay the promises of the past and no savings to make up for it. That is the real tragedy. People believed these false promises of government and thus did not save and prepare for the future. That is the main reason that the US has the lowest savings rate in the developed world. They think they will be bailed out. Now they are learning that there are no resources available to deal with this problem.

False promises abound in the entitlement arena. President Obama's refusal to address this problem in his recent budget demonstrates the cynicism of the modern American political leadership.